GDP stands for gross domestic product, the total monetary value of all final goods and services produced within the territory of a country over a particular period of time (quarterly or annually).
Unlike the CPI, the GDP deflator is not based on a fixed basket of goods and services; the "basket" for the GDP deflator is allowed to change from year to year with people's consumption and investment patterns.
This can lead to a situation where official statistics reflect a drop in real prices, even though they nominally have stayed the same.
Unlike some price indices (like the CPI), the GDP deflator is not based on a fixed basket of goods and services.
Therefore, new expenditure patterns are allowed to show up in the deflator as people respond to changing prices.
The theory behind this approach is that the GDP deflator reflects up to date expenditure patterns.
On the other hand, with governments in developed countries increasingly utilizing price indexes for everything from fiscal and monetary planning to payments to social program recipients, even small differences between inflation measures can shift budget revenues and expenses by millions or billions of dollars.